Gold rally runs out of puff

The gold price has come under further pressure, falling almost 1.5 per cent overnight, after the US Federal Reserve signalled an earlier start to interest rate rises.

Since rising to a year's high of $US1392.33 per ounce on Monday on the back of tensions between Russia and Ukraine, the gold price has declined by about 4 per cent. The comments from Fed chair Janet Yellen and the Fed's hawkish forecasts early on Thursday saw more investors abandon the precious metal.

The gold price fell to $US1325.89 this morning, and was trading just under $US1330 at 1pm on Thursday.

"Since there was no driver out of Russia and Ukraine overnight it looks like everyone's turning their mind back to the US and that's the key reason why the gold price has come off," UBS commodities analyst Tom Price said.

"But if tomorrow or in the next week Russia and Ukraine come back into the headlines a bit, that will become the dominant driver. I think gold is just being torn in two different directions."

ANZ commodities analyst Victor Thianpiriya said the easing of tensions between Ukraine and Russia was behind the decline in the gold price since Monday.

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Mr Price said if the continuation of the Ukraine crisis would support the gold price. At the same time, the recovery of the US economy would boost the US dollar, which in turn could weaken the price of the precious metal.

"In terms of currency impacts, that means the US dollar is likely to lift even after the lift over the last 12 months," Mr Price said. UBS forecasts the gold price to fetch an average of $US1300 this year, and for the price to ease down to between $US1200 to $US1250 by the end of the year.

"There is a long-standing inverse relationship between the US dollar and gold, so we think that is the sustainable driver here - the one that I think will last over several years."

Another factor pushing down the gold price has been the lack of Chinese physical demand for the precious metal, Mr Thianpiriya said. While ANZ has a positive outlook for gold and expects it to trade at about $US1450 per ounce by the end of the year, he said the precious metal had to fall further to stimulate renewed demand from the Chinese.

"It's pretty clear to me that prices have gone too far up and that's eroded the demand in China, which is the world's largest gold consumer, and that's key for the market," Mr Thianpiriya said.

"So the market has to find that price again where the Chinese are going to start stepping in and buying physical gold. And I think that will support the price, but I don't think we are there yet."